TE Connectivity (TEL)

Investment Review After Q2 FY2026 Earnings (2026.04.22)

TL;DR

TE Connectivity is the world’s #1/#2 connector company — they make the connectors that go into cars, data centers, power grids, and factories. Just reported: revenue +15%, record adj EPS $2.73 (+24%), record orders $5.3B. Stock up ~70% over 5 years ($129 → $219). At $219 (21x P/E(ttm)), fairly valued with balanced risk-reward. The risk: auto production weakness (52% of revenue) and AI growth deceleration.

Summary

Finding	Assessment
5-Year Stock Return	$129→$219. TTM OP +59% ($2,461M→$3,925M). P/E(ttm) range 12x–35x, current 21x mid-range.
Business Model	#1/#2 global connector company. Transportation 52%, Industrial 48%. AI DDN approaching $2.4B run-rate.
Competitive Moat	WIDE Engineering co-creation (3-7yr design-ins), copper AND optical positioning, multi-decade OEM relationships, scale unmatched.
Past 5-YR Drivers	AI connector boom (DDN +48% YoY), auto content growth 4-6pt above production, Richards acquisition adding energy grid exposure.
Recent Stock Move	$148→$219 (vs Sep 2024). Record Q2: $4.74B rev (+15%), record EPS $2.73 (+24%), orders $5.3B (+25%).
Revenue Trend	DECELERATING Rev YoY: 15% (Q2 2026) → 10% (Q3 2026E).
Margin Trend	FLAT OM%: 20.5% (Q2 2026) → 20.8% (Q3 2026E).
TTM OP Trajectory	DECELERATING TTM OP QoQ: 4.7% (Q2 2026) → 3.7% (Q3 2026E). TTM OP $3,925M.
Key Opportunities	AI rev raised $150M to ~$2.4B. Record orders $5.3B (+25%). Energy $445M (+60%). Passive optical acquisition for CPO.
Key Risks	Auto production uncertainty (~88-89M, -4% organic Q2). Resin/freight inflation timing lag. Sensors/medical flat. 21x above historical avg.
Catalysts	Q3 FY2026 guided ~$5.0B (+10%), adj EPS ~$2.83 (+17%). H2 AI revenue acceleration. Auto volume revisions. Tariff clarity.
P/E(ttm) Valuation	21x (5-yr range: 12x–35x). Compressed from 32x peak as earnings caught up. Upside 28x if AI sustains; downside 16x if growth normalizes.

Q2 FY2026 Key Data

Revenue $4,744M (+15% reported, +7% organic), beat guidance. Adj EPS $2.73 (+24%), record. Orders $5.3B (+25% YoY), book-to-bill 1.12x.
By segment: Industrial +27% (DDN +48%, Energy +60%, broad-based), Transportation +5% (Auto -4% organic, CommTrans +17% organic).
Q3 guided at ~$5.0B revenue (+10%, +9% organic). Adj EPS ~$2.83 (+17%).

Key Takeaways from Earnings Call

AI revenue raised $150M for FY2026, approaching $2.4B total (70% of DDN). All incremental in H2. Acquired passive optical connectivity technology for copper AND optical positioning. CEO: “it’s not copper or optical, it’s copper AND optical.”
Growth broadening beyond AI — over 70% of order growth from industrial segment. Factory automation improving (double-digit orders in every region). Commercial transport content up to $2,000/vehicle on next-gen powertrains vs $400 today. Energy grid spending multi-decade cycle.
No tariff-related order pullback seen. Managing inflation (resins, freight) through pricing and footprint optimization. M&A pipeline “pretty active.” Auto production assumed 88-89M units, content growth 4-6pt above market at low end of range.

Key Segments and Revenue Mix (H1 FY2026)

Segment	H1 FY2026 Revenue	% of Total	Key Details
Industrial Solutions	$4,524M	48%	+32% YoY reported (+21% organic). DDN $1,364M (+59% organic, AI connectors). Energy $801M (+72%, Richards acq). ACL $1,081M (+10% organic). AD&M $791M (+8% organic). Medical $353M (flat).
Transportation Solutions	$4,889M	52%	+7% YoY reported (+3% organic). Auto $3,592M (+6% reported, +1% organic, 4-6pt content growth over market). CommTrans $810M (+20% organic). Sensors $487M (+2% reported, -3% organic).

Revenue mix shifting toward Industrial: H1 FY2026 at 48% vs ~40% two years ago, driven by DDN AI growth and Richards acquisition. Total H1 FY2026 revenue $9,413M (+18% reported, +11% organic). Record orders $10.4B in H1, book-to-bill 1.11x. CapEx running ~6% of revenue, almost entirely for AI program capacity. 90,000+ employees across 130+ countries. Key competitors: Amphenol, Molex, JAE Electronics.

Business Model

SUPPLIERS

Specialty metals & alloys (copper, gold)
Engineered polymers & resins
Plating materials & chemicals
Precision tooling & stamping equipment

Materials / Components →

TE CONNECTIVITY

Engineering co-creation with OEMs
Connector design & manufacturing
Global footprint (130+ countries)
AI data center connectors (DDN)
~$19B Revenue FY2025

Connectors / Sensors → $ Revenue

CUSTOMERS

Auto OEMs (Toyota, VW, GM, Ford)
Hyperscalers (AWS, Azure, Google)
Aerospace & Defense primes
U.S. utilities (via Richards)
Industrial automation firms

Moat Assessment: WIDE

#1 or #2 global connector company across multiple verticals: TE holds dominant positions in auto connectors, industrial connectors, and data center connectors. Scale advantages in manufacturing, engineering resources, and global reach create barriers to entry. Multi-decade OEM relationships with design-in cycles of 3-7 years create significant switching costs.
Engineering co-creation model creates deep lock-in: TE engineers work embedded within customer R&D teams, co-designing connectors for specific applications. Once a connector is designed into a platform, it stays for the life of that platform. The Q2 transcript emphasized customers are asking TE to ramp faster, not shopping alternatives—a sign of entrenched positioning.
Copper AND optical positioning hedges technology transitions: CEO Curtin emphasized “it’s not copper or optical, it’s copper AND optical.” TE’s passive optical acquisition fills the fiber-attach-to-CPO gap for scale-out, while copper remains the workhorse in the rack. This dual positioning means TE’s TAM grows regardless of which technology wins, making the competitive position self-reinforcing.

Stock vs. Earnings — 5-Year Performance

Stock currently $219, up 70% from $129 (5 years ago). Driven by accelerating organic revenue growth from secular trends in AI connectivity, power infrastructure, and automotive content gains that repositioned TE from a steady industrial compounder to an AI infrastructure beneficiary.
TTM OP grew from $2,461M to $3,925M (+59%). Operating margins expanded from ~18% to record 22% levels through operational leverage, favorable mix shift toward higher-margin AI connectors, and disciplined cost management across both segments.
P/E(ttm) range of 12x–35x reflects re-rating from industrial to AI play. Current 21x is mid-range, having compressed from the 30-35x peak as earnings growth caught up with the stock. The market now prices in sustained ~15% earnings growth.

Past 5-Year Key Drivers

AI connector boom driving DDN to $2.4B run-rate: Digital Data Networks revenue grew +48% YoY in Q2 FY2026 (+46% organic), with AI revenue raised $150M for FY2026 to approach $2.4B. Year-to-date DDN orders of $2B with backlog extending into FY2027. TE acquired passive optical connectivity technology to expand from copper into fiber-attach for CPO scale-out applications.
Automotive content growth outpacing declining production: TE achieves 4-6 percentage points of organic revenue growth above auto production volumes through increasing content per vehicle from electrification, data connectivity, and ADAS. Auto production ~88-89M units (slightly down), but content growth in Asia/Europe offsets. Commercial transport seeing $2,000 content on next-gen powertrains vs $400 today.
Margin expansion from operational leverage and mix shift: Adj operating margin reached 21.7% in Q2 FY2026 (+130bps YoY). Industrial segment expanded 260bps to 21.8% from volume leverage and AI mix. Management targeting 30%+ flow-through on incremental revenue, with both segments operating above 21%. Richards acquisition integration adding energy grid exposure.

Quarterly Key Metrics

USD	Q2'24	Q3'24	Q4'24	Q1'25	Q2'25	Q3'25	Q4'25	Q1'26	Q2'26	Q3'26E
Quarter End	Mar24	Jun24	Sep24	Dec24	Mar25	Jun25	Sep25	Dec25	Mar26	Jun26
Stock	$141	$147	$148	$141	$141	$166	$217	$230	$209	$219
Stock QoQ	+4%	+4%	+1%	-5%	-0%	+18%	+31%	+6%	-9%	+5%
Rev YoY	-5%	-0%	+1%	+0%	+4%	+14%	+17%	+22%	+15%	+10%
OM%	19%	19%	19%	19%	19%	19%	20%	21%	20%	21%
R40 (Rev YoY + OM%)	+14%	+19%	+19%	+20%	+24%	+34%	+37%	+43%	+35%	+31%
TTM OP ($M)	$2,782	$2,853	$2,927	$2,983	$3,001	$3,068	$3,200	$3,384	$3,615	$3,785
TTM OP QoQ	+3%	+3%	+3%	+2%	+1%	+2%	+4%	+6%	+7%	+5%
FCF/OP	94%	99%	94%	97%	91%	90%	95%	87%	90%	87%
Debt/EBITDA	1.1x	1.1x	1.1x	1.1x	1.4x	1.4x	1.3x	1.2x	1.1x	1.1x
P/E(ttm)	12x	12x	13x	20x	26x	29x	32x	31x	20x	21x

Recent Stock Performance & Drivers

Stock currently $219, vs $148 (Sep 2024). The appreciation driven by record Q2 FY2026 results—sales $4.74B (+15% reported, +7% organic), record adj EPS $2.73 (+24%), and record orders of $5.3B (+25% YoY) with book-to-bill of 1.12x.
TTM OP expanded from $2,927M to $3,925M—a 34% increase over 7 quarters, driven by AI connector demand (DDN +48%), Richards acquisition contribution, and record adj operating margins of 21.7% (+130bps YoY).
P/E(ttm) compressed from 32x peak to 21x as strong earnings growth caught up with the stock. R40 peaked at 43% (Q1 FY2026) before moderating to 31% as base effects normalize. Current 21x is mid-range, reflecting balanced risk-reward.

Opportunities

AI connector revenue raised $150M for FY2026, approaching $2.4B total AI revenue (70% of DDN). All incremental AI revenue scheduled for H2 FY2026. Year-to-date DDN orders of $2B with backlog building into FY2027. TE acquired passive optical connectivity technology to position for copper AND optical in both scale-up and scale-out data center architectures.
Record orders of $5.3B (+25% YoY) with broadening growth across all businesses. Over 70% of order growth came from industrial segment, with DDN +60%, energy double-digit, and automation/defense building backlog. Transportation orders also up double-digit with commercial transport recovering globally. Order momentum continued into April with no tariff-related pullback.
Energy segment positioned for multi-year grid modernization cycle. Q2 energy revenue $445M (+60% reported, +11% organic). ~60% from utility grid hardening, ~20% industrial/data center, ~20% clean energy. The Richards acquisition deepened TE’s U.S. utility exposure during a period of unprecedented grid investment driven by AI-related load growth.

Challenges

Auto production assumptions (~88-89M units) carry uncertainty: Transportation segment grew only +5% reported (-1% organic) in Q2, with auto -4% organic. North America weaker than expected offset by Europe strength. While content growth provides a buffer, any significant production downturn could drag the ~52% of revenue from transportation.
Inflationary pressures from oil-based resins and freight costs: CFO Mitts highlighted increased inflation from resins and logistics costs in Q2. While TE is managing through pricing and footprint optimization, there is a timing lag between cost increases and price realization that creates quarterly margin noise.
Sensor segment and medical remain flat/declining: Sensors -3% organic and Medical -4% organic in Q2 FY2026. These are smaller businesses but represent pockets of weakness that could widen if macro conditions deteriorate. Factory automation growth, while improving, is still early in recovery.

Next 12 Months

Q3 FY2026 guided at ~$5.0B revenue (+10% reported, +9% organic), adj EPS ~$2.83 (+17%). Sequential and YoY growth expected in both segments. AI revenue acceleration in H2 supports the increase, with $150M additional AI revenue versus prior view.
FY2026 expected to deliver well over $2B of total revenue growth. Management confirmed exceeding the 6-8% through-cycle growth target. 30%+ operating income flow-through should drive margins toward 22%+ for the full year.
Watch for: Auto production volume revisions, tariff policy impacts on cross-border supply chains, AI connector order sustainability vs. potential double-ordering, and copper-to-optical transition timing in hyperscale data centers.

Next 12-24 Months

AI connector backlog extending into FY2027 provides multi-year visibility. The $3B AI revenue target set at November 2025 Investor Day is “shifting to the left” per CEO Curtin. CapEx at ~6% of revenue (vs. historical ~4%) is tied to specific awarded programs, not speculative capacity.
Passive optical connectivity positions TE for the next growth inflection. The technology acquisition enables fiber-attach-to-CPO solutions for scale-out applications. As optical connectivity migrates into the rack, TE will benefit from both copper (still the workhorse) and optical (incremental content), expanding TAM regardless of technology mix.
Commercial transportation content growth could be transformative: Content per next-gen powertrain vehicle up to $2,000 vs. $400 today, driven by electrification and data connectivity. With global commercial transport recovery underway across all regions, this represents a significant organic growth vector independent of AI.

Core Metrics Scorecard

	Q4'21	Q1'22	Q2'22	Q3'22	Q4'22	Q1'23	Q2'23	Q3'23	Q4'23	Q1'24	Q2'24	Q3'24	Q4'24	Q1'25	Q2'25	Q3'25	Q4'25	Q1'26	Q2'26	Q3'26E
Quarter End	Sep21	Dec21	Mar22	Jun22	Sep22	Dec22	Mar23	Jun23	Sep23	Dec23	Mar24	Jun24	Sep24	Dec24	Mar25	Jun25	Sep25	Dec25	Mar26	Jun26
R40 > 40%	✅																	✅
R40 accelerate					✅		✅			✅		✅	✅	✅	✅	✅	✅	✅
TTM OP QoQ > 10%	✅
TTM OP QoQ accelerate	✅			✅		✅			✅	✅	✅		✅			✅	✅	✅
TTM FCF/OP > 60%	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅				✅	✅	✅
Debt/EBITDA < 3.5	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅	✅
Total passes	6	2	2	3	3	3	3	2	3	4	3	3	4	3	2	3	3	5	2	2
Stock QoQ	+3%	+16%	-17%	-15%	+0%	+2%	+13%	+8%	-10%	+14%	+4%	+4%	+1%	-5%	-0%	+18%	+31%	+6%	-9%	+5%
P/E(ttm)	21x	17x	16x	13x	13x	14x	16x	17x	16x	12x	12x	12x	13x	20x	26x	29x	32x	31x	20x	21x

TEL’s scorecard shows a steady 2-4 pass profile, with occasional spikes to 5-6 during growth inflections. The Q1 FY2026 peak of 5 passes (R40 >40%, R40 accelerating, TTM OP QoQ accelerating, FCF/OP, Debt/EBITDA) coincided with the stock trading at $230. The current 2 passes reflect R40 moderating as base effects normalize.
TTM OP QoQ growth has been positive for 20 consecutive quarters but never above 10%, reflecting TE’s steady compounder nature. FCF/OP and Debt/EBITDA consistently pass, demonstrating strong cash generation and conservative balance sheet management. The absence of extreme scorecard swings is characteristic of a well-managed industrial.

Chart: R40 vs Stock Price (Since 2020)

Chart: Scorecard Total Passes vs Stock Price (Since 2020)

Source: SEC EDGAR annual and quarterly filings, company earnings conference calls and presentations.

Disclaimer: This report is for educational purposes only. NO investment advice.